Finova Capital in talks to raise Rs 800 crore from Avataar Venture, Madison India Capital and Sofina

Started by banker-turned-entrepreneur Mohit Sahney and his wife Sunita, Finova is primarily engaged in financing secured MSME loans (backed by immovable properties) and home loans, with a focus on semi-urban and rural areas

MSME-focused non-banking financial company (NBFC) Finova Capital Private Limited (FCPL) is in advanced talks to raise a Rs 800-crore equity funding round led by new investors Avataar Venture Partners, Madison India Capital and Belgium investment fund Sofina, three people close to the development have told Moneycontrol.

The fundraise is likely to be a mix of primary and secondary transactions, with participation from existing investors.

The Jaipur-based financial services firm earlier raised $65 million from Norwest Venture Partners, Maj Invest, Faering Capital, and Peak XV.

The deal comes at a time when the segment, particularly NBFC fintech firms focused on micro, small and medium enterprises (MSMEs) and small medium businesses (SMBs) is seeing traction. Investors are eager to back ventures focusing on micro-entrepreneurs and traders in non-metro regions to serve their credit needs.

Moneycontrol has written about some of the latest deals brewing in the space, including a $100-million fundraise at Mumbai-based NBFC fintech Mintifi and a $50 million round in the works at rural credit startup Sarvagram.

Recently, Gurugram-based FlexiLoan raised Rs 290 crore to serve the working capital needs of the growing MSME base.

Other lending ventures too are gaining momentum, starting with personal loan-focused Moneyview turning unicorn after its latest fundraise. A unicorn is a privately held company with a valuation of $1 billion or above.

Queries sent to Finova and three investors did not elicit a response.

Inside Finova

Started by banker-turned-entrepreneur Mohit Sahney and his wife Sunita, Finova is primarily engaged in financing secured MSME loans (backed by immovable properties) and home loans, with a focus on semi-urban and rural areas. Almost 91 percent of Finova’s portfolio is concentrated in semi-urban areas.

“These are creditworthy borrowers who may or may not have traditional income documentation like income tax returns or salary slips and hence, are financially excluded by other large mortgage companies or institutions,” the firm said in its annual report.

The company provides loans to micro-entrepreneurs and semi-skilled professionals who have limited or no access to lending from formal financing institutions. Consequently, FCPL has adopted a business model where credit appraisal is based on a cash flow analysis of the borrower instead of credit history.

Within MSME financing, the company’s average ticket size is around Rs 3.6 lakh, primarily catering to self-employed clientele.

Finova has disbursed Rs 3,743 crore in loans, with around 73 percent disbursed over the last two and a half years. The company’s disbursements increased from Rs 897.33 crore in FY23 to Rs 1,349 crore in FY24, a 50 percent increase. Higher disbursals have has a positive impact on its net interest margins, which improved to 15.13 percent as of June 30, 2024.

Focused on the Rajasthan, Madhya Pradesh and Chhattisgarh regions, Finova has been aggressively expanding to newer states such as Karnataka, Andhra Pradesh Telangana, and Himachal Pradesh over the past year, a Care Ratings report said. It operates in 14 states with a branch network of more than 300.

Its gross assets under management (AUM) stood at Rs 2,656 crore, up 63 percent from the previous year.

“Finova’s operating expenses continued to remain high in FY24 at 6.88 percent, as the company has hired 1,676 new employees and continued with branch expansions into existing and newer geographies. The company opened 133 new branches in FY24 and ventured into four new states,” Care Ratings said.

Key metrics

Finova recorded an impressive growth in FY24, with revenue jumping almost 60 percent to Rs 530 crore. It posted a profit after tax (PAT) of Rs 151.5 crore, a 71 percent year-on-year rise.

Despite catering to the high-risk MSME segment, FCPL has effectively managed collections to prevent minor delinquencies from turning into non-performing assets (NPAs), maintaining solid asset quality. As of March 31, 95.03 percent of its loans were repaid on time.

Its gross NPA and net NPA stood at 1.79 percent and 0.99 percent, respectively, as against 0.97 percent and 0.32 percent in FY24, the annual report said.

In the first quarter of FY25, asset quality saw a temporary dip, with gross NPAs rising to 2.2 percent and net NPAs to 1.2 percent, aligning with the seasonal cash flow patterns of borrowers and expected recovery in the second half of the financial year, the ratings agency said.